Understanding what carbon credits are, how they work, how they relate to IT, and how they’re useful for your organization
Earth’s atmosphere is remarkable; the only one of its kind in our solar system. It “allows life to exist...like a protective bubble that surrounds the planet,” as NASA atmospheric scientist Rei Ueyama put it.
Made up of five layers, it protects us from the sun’s harmful ultraviolet (UV) rays and provides air for us to breathe. It also traps heat, keeping the Earth’s temperatures moderate and habitable for all kinds of life. This is also known as the greenhouse effect. Without that function, Earth’s temperature would be more like the moon’s, which between day and night experiences extreme temperature fluctuations—between -133°- 121° C (-208°F to 250°F) —because the moon does not have an atmosphere like ours.
This is, however, a careful balance. Just within our solar system, we can see examples of the greenhouse effect taken to the extreme, to the point where life is unsustainable. The planet Venus has a similar size and mass as Earth, but its atmosphere is primarily made up of carbon dioxide—a greenhouse gas. Because of this atmospheric makeup, the surface temperature on Venus is nearly 460 degrees Celsius: hot enough to melt lead, and too hot to support any forms of life.
It’s why it’s the increasing levels of greenhouse gases in our Earth’s atmosphere—and the subsequent warming of our planet—are so alarming. Unequivocally, human activities have rapidly increased greenhouse gas emissions and caused global warming, and have continued to increase, causing “widespread and rapid changes in atmosphere, ocean, cryosphere, and biosphere.”
Why are we sharing this?
We don’t know about you, but we like it here on Earth. Yet in their 2023 Report, the Intergovernmental Panel on Climate Change (IPCC), reported with high confidence that if global warming continues, every increment will intensify “multiple and concurrent hazards,” but “deep, rapid, and sustained reductions in greenhouse gas emissions” would likewise lead to a noticeable slowdown in global warming within around two decades, and also to discernible changes in atmospheric composition within a few years.”
While there’s much responsibility we share as individuals, companies all along the supply chain must take action to balance profit, people, and the planet to improve sustainability, reduce emissions, and leave behind a better world for future generations.
We also must act fast to meet aggressive goals set by countries and companies to slow down global warming by 2030. As reported by the IPCC, limiting human-caused greenhouse gas emissions will require net zero CO2 emissions—the primary greenhouse gas—which is created by burning fossil fuels including coal, oil, and gas.
A key part of the strategy to achieve this is carbon credits.
What is a Carbon Credit?
Carbon credits were created as a mechanism to help the world’s nations and companies reduce greenhouse emissions. A carbon credit represents a measurement of reduced carbon emissions achieved by one party, which can be used to compensate (offset) the emissions of another party. Typically, a carbon credit represents the right to emit one ton of CO2 emissions.
Carbon credits can be generated in a few different ways: from reducing emissions, removing pre-existing greenhouse gases in the atmosphere, or avoiding the release of emissions altogether.
What does one ton of carbon emissions look like?
One ton of carbon emissions is the equivalent of a 900 km (2,400-mile) drive: essentially if you were to drive from Toronto to New York City, one way, the average 9.35 km/l (22 mpg) car would approximately emit 1 ton of carbon emissions.
To understand how far we’ve progressed and how far we need to go, in 2020 the number of carbon offsets issued were the equivalent of 210 million metric tons of CO2 emissions—equal to 0.4% of the total global emissions. To hit the 2030 emissions reductions target, this needs to be increased to 2 billion tons of CO2. To hit net-zero emissions by 2050, we need to reach approximately 7.6 gigatons of CO2 offsets or removal.
How do Carbon Credits work?
The expectation is not for companies to reach carbon neutrality (net zero emissions)—where they—instantly through reduction efforts. It takes time and ingenuity. Companies who pollute, no matter their industry, receive credits that allow them to pollute up to a certain limit, which is gradually reduced over time as their emissions reduction efforts grow. They can also sell any credits that are unused to private companies who need them, providing them with another incentive to increase sustainability.
Likewise, if they pollute beyond their emissions cap, they must spend extra money to purchase additional carbon credits to offset their emissions.
This system is known as a cap-and-trade system; alternatively, it’s also called allowance trading.
The current carbon cap-and-trade model is based on the one that was highly successful at reducing the sulfur pollution that was causing acid rain. Established in 1990 with a phase-in that began in 1995 and culminated in 2000, a statute under the US Clean Air Act capped sulfur emissions at 3200 coal plants and created a market for energy firms to buy and sell allowances issued by the government to emit sulfur (SO2). By 2007, the US’s sulfur emissions were reduced by 43% from 1990 levels, despite electricity generation increasing more than 26% between 1997 and 2007.
What are voluntary carbon emissions?
When we talk about cap-and-trade, we’re largely talking about what is known as a compliance carbon market, where companies have their emissions capped or otherwise regulated by the government in the country they operate in.
There is also a voluntary carbon market which is primarily used by organizations that purchase carbon credits for use as part of corporate social responsibility (CSR) or sustainability programs. While the compliance market is mandated, the voluntary market is optional.
In 2021, the size of the voluntary carbon market was estimated at $1 billion.
Known as Voluntary Emissions Reductions (VER), voluntary carbon credits are generated from projects to reduce emissions.
In the voluntary market, third-party validators help set national and international standards and add a level of control to the system by guaranteeing that the carbon offsets on the market are the result of actual, real-world reductions in emissions. Regulated market platforms—such as Carbonplace, created by financial institutions CIBC, Itaú Unibanco, National Australia Bank, and NatWest Group—provide vetted infrastructure to connect emissions project developers with customers looking to fund carbon reduction and removal projects, and ensure secure, scalable voluntary carbon credit trading.
Are carbon credits useful for my organization?
For companies with corporate social responsibility or sustainability goals, carbon credits can be an important piece of your organization’s strategy to meet emissions reductions and carbon neutrality goals.
In 2019, Global Optimism and Amazon co-founded The Climate Pledge to “bring the world’s top companies together to accelerate joint action, cross-sector collaboration, and responsible change” through regular emissions measurement and reporting, carbon elimination, and the use of credible offsets to “neutralize any remaining emissions.”
To date, 499 companies across 45 countries have joined, including IBM, Sony, McKinsey & Company, and Salesforce.
Even for mid-sized organizations, programs like the Climate Pledge help set a model for sustainability goals, as we all transition to carbon neutrality.
Your organization’s sustainability team will be able to quickly inform you about how they use carbon credits as part of their carbon reduction initiatives. Something else to consider: CO2’s carbon credits are unique in that they’re self-generating. When you retire your end-of-life IT equipment through our programs, we not only give you top-value back for your equipment, but we also provide you with third-party validated carbon credits generated by you.
It’s a fantastic way to deliver financial gain for your organization, carbon emissions for our planet, and help you turn legacy tech into your company’s legacy.
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